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2 Canadian Financial Sector Dividend Giants


Published 7/14/14

This is a guest post written by Sabeel at Roadmap2Retire.

Hello there! I am Sabeel, blogger at Roadmap2Retire. I started blogging about a year ago to document and share my experiences as an investor, in order to help people exit the rat race and reach financial independence. I plan on achieving this by investing in well established blue chip companies which have a long track record of paying dividends year-after-year. Amongst the dividend paying companies, I focus on the subset of companies called dividend growers, which not only pay dividends every year, but increase those payouts – hopefully beating the inflation rate. My focus is on building and increasing my income stream via dividends supplemented with other passive income streams that are within everyone’s reach.

I live in Canada, and hence have decided to write a bit more about Canadian corporations in this post. With a population of 33 million, and one of the least densely populated countries in the country, Canada is home to some of the most powerful and resilient corporations in the world. The country has a very strong financial industry, which escaped the great recession of yesteryears. A resource-rich country provides great prospects for investments in finance, energy and services industry. Some of the financial institutions such as Bank of Montreal (BMO) and Bank of Nova Scotia (BNS), the first dividend payers in Canada still pay the dividends without any discontinuation since 1829 and 1832 respectively. In this sector, we take a close look at two giants in the financial sector.

The Financial Sector

The Big Five, as they are known, make up the bulk of the Canadian financial sector include Royal Bank of Canada (RY), Toronto-Dominion Bank (TD), Bank of Nova Scotia (BNS), Bank of Montreal (BMO) and Canadian Imperial Bank of Commerce (CIBC).

While all of the Big Five banks make for great investments, I personally prefer the following two companies: TD and BNS. Why? Because they are one of the best run companies and have the best products and services in the industry. Also, there is widespread speculation about a Canadian housing market bubble with consumers with close to 160% of debt-to-income ratio. While the governor of Bank of Canada Stephen Poloz expects a soft landing of the housing market, financial institutions could see some headwinds in the next few years. Of the Big Five, BNS and TD (and to a smaller extend BMO) stand to weather the storm better than the others due to international exposure.

Toronto-Dominion Bank (TD)

The Toronto-Dominion Bank is the second largest of the Canadian banks by market cap and based on assets; and is the sixth largest bank branch network in North America. TD saw a pause in its dividend growth during the financial crisis. However, TD has started raising its dividends after the crisis with 5-yr DGR (dividend growth rate) of 8.03%. Since 2011, TD has started raising dividends in smaller increments, but more than once a year. The latest dividend increase came in February 2014 with a raise of 9.3%.

Key Stats

  • Symbol: TD.TO
  • Price: $55.05
  • Yield: 3.42%
  • Payout ratio: 50.27%
  • P/E: 14.71
  • Forward P/E: 11.83
  • Debt/Equity: 0.16
  • 5-yr DGR: 8.03%

Bank of Nova Scotia (BNS)

The Bank of Nova Scotia is the third largest of the Canadian banks by deposits and market cap. BNS is also the most international of the Canadian banks with exposure in 55 countries outside Canada. BNS saw a pause in its dividend growth during the financial crisis. However, BNS has started raising dividends after the crisis with a 5-yr DGR of 5.15%. Since 2012, BNS has started raising dividends in smaller increments, but twice a year. The latest dividend increase came in March 2014 where dividends were raised 3.2%. The next expected announcement is in August or September 2014.

Key Stats

  • Symbol: BNS.TO
  • Price: $72.02
  • Yield: 3.55%
  • Payout ratio: 47.67%
  • P/E: 13.4
  • Forward P/E: 12.02
  • Debt/Equity: 0.11
  • 5-yr DGR: 5.15

Full Disclosure: Long BNS. My full list of holdings are available here.


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